India Crypto Regulation Update: Government Policy Shift Explained

India’s crypto regulatory landscape is undergoing a notable shift. The government has maintained its existing tax regime but is now doubling down on enforcement and global compliance. New penalties, tighter KYC rules, and international data-sharing commitments signal a move from ambiguity to structured oversight.

Why This Matters Now

India’s crypto market is one of the fastest-growing globally, yet regulatory clarity has lagged behind adoption. The latest policy updates—announced in Budget 2026 and recent regulatory directives—mark a turning point. The government is shifting from passive taxation to active enforcement, aiming to curb illicit activity and align with global standards.

Enforcement Takes Center Stage

The Union Budget 2026, presented on February 1, 2026, left the headline crypto tax rates unchanged: a flat 30% on gains and 1% TDS on transactions remain intact . However, the government introduced a new penalty regime to enforce compliance. From April 1, 2026, entities that fail to report crypto transactions will face penalties: ₹200 per day for non-filing and ₹50,000 for incorrect or uncorrected disclosures .

This signals a strategic pivot. Rather than debating tax rates, the focus is now on ensuring accurate reporting and oversight .

Tighter KYC and AML Rules

In early January 2026, India’s Financial Intelligence Unit (FIU) rolled out stricter AML and KYC norms for crypto exchanges. New requirements include live selfie verification with liveness detection and geo-tagging during onboarding . These measures aim to prevent identity fraud and illicit fund flows.

The FIU’s enforcement-first tone marks a departure from earlier, advisory-style guidelines. The new rules also impose strict conditions on Principal Officers at exchanges and prohibit anonymity-enhancing tools like mixers and tumblers .

Global Data Sharing on the Horizon

India is also preparing to join the global crypto data-sharing regime under the Crypto-Asset Reporting Framework (CARF). Starting April 1, 2027, Indian tax authorities will exchange cross-border crypto transaction data with other countries . This step aligns India with global standards and strengthens oversight of offshore crypto activity.

Judicial Pressure Adds Momentum

On February 24, 2026, the Orissa High Court asked the central government to clarify the legal status of cryptocurrencies amid conflicting regulatory signals. The court also summoned the Superintendent of Police from Balangir district in connection with frozen bank accounts tied to crypto transactions . This judicial intervention underscores the urgency for a clear legal framework.

What’s Driving the Shift

• Rapid adoption: India leads in crypto adoption, but regulatory gaps have created risks. The government is responding with enforcement and clarity .
• Global alignment: Joining CARF and tightening AML norms reflect India’s intent to align with international standards .
• Judicial pressure: Courts are demanding clarity, pushing the government to act decisively .

What Stakeholders Are Watching

• Crypto exchanges and intermediaries must upgrade compliance systems to handle reporting, KYC, and penalties.
• Investors face unchanged tax burdens but must ensure transactions are reported accurately to avoid penalties.
• Regulators are expected to issue guidance on implementation, especially for CARF and KYC norms.
• Courts may continue to influence policy clarity through legal challenges and rulings.

Looking Ahead

India’s crypto policy is entering a new phase—one defined by enforcement, transparency, and global integration. The key developments to monitor include:

• Implementation of penalties from April 1, 2026.
• Operational rollout of CARF-based data sharing from April 1, 2027.
• Regulatory clarifications following judicial prompts.
• Industry adaptation to stricter KYC and AML norms.

This shift marks a clear message: crypto in India is no longer a gray area. It is now firmly within the regulatory perimeter.

In summary, India’s crypto regulation is evolving from passive taxation to active enforcement. With unchanged tax rates, new penalties, tighter KYC rules, and global data-sharing commitments, the government is signaling that compliance is non-negotiable. The coming months will reveal how effectively the industry adapts—and how the legal framework evolves to support clarity and stability.